Legal nature of Partnerships

1. Partnership definition

Partnership is one of the early forms of businesses that emerged due to the objective need of social life. Due to the need to increase capital to expand the business and limit risks, investors associate with each other and because the nature of the partnership is to do business together under a common name - "Partnership". In other words, these businessmen were operating individually, but they are acquainted and trust each other, so they have formed a partnership. It can be said that a partnership is an association of individual traders. As a result, it can be understood that a partnership is a type of company of which at least two partners are the joint owners and they are responsible with all their assets for the company's obligations. The other partners are only responsible for the debts of the company within the amount of capital that they commit to contributing to the company. The partnership may not issue any type of securities.

2. Legal features

First, regarding general partner of a partnership. A partnership is established if at least 2 individuals are general partners whose liability for the company’s obligations is equal to all of their assets;

Second, regarding the responsibility of types of partners. As analyzed above, a partnership company must have at least 2 general partners whose liability for the company’s obligations and activities is equal to all of their assets. This liability is not limited to any partner, if there is an agreement for this limitation, it loses the nature of the partnership.

Third, regarding the right to manage and represent the partnership. During the operation of the company, the partners of the partnership have the right to represent and organize the day-to-day business operations of the company. Any restriction on a general partner, in the conduct of the company's day-to-day business, becomes effective against a third party only when that person is made aware of such restriction.

Fourth, regarding the trader status. According to Vietnamese law, a partnership has the status of a trader, the general partners are joint owners in the company having rights and obligations corresponding to their capital contribution. However, around the world, there are many countries that consider general partners of a partnership to have juridical person status. That is, when becoming a member of a partnership, the partners immediately have the trader status without going through any registration procedures.

Fifth, regarding the issuance of securities: partnerships are not allowed to issue any type of securities, partnerships' ability to raise capital is very limited.

Sixth, regarding the juridical person status. A partnership law firm has juridical person status, previously the Enterprise law 1999 did not recognize the juridical person status of partnerships, since the Enterprise Law 2005, the juridical person status of partnerships is recognized. We can see that the partners are jointly and severally liable for the rights and obligations in the company, but there is still separation between the partnership's assets and the assets of its partners, the partners of the company must carry out procedures to transfer ownership of their assets contributed as capital to the company and assets formed during the operation of the company are the assets of the company.

3. Partners of a partnership

a. General partner

According to Clause 2, Article 17 of the Enterprise Law 2020, a partnership must have at least two general partners, the general partner must be an individual, and is responsible with all his/her assets for the obligations. The partners shall not fall into the cases prohibited from establishing enterprises.

Therefore, general partner is an important factor to establish and operate a partnership in accordance with the law. The change of general partners involving death, loss of civil act capacity or capital withdrawal from the company will greatly affect the capital structure, organizational activities, or even the existence of the partnership.

According to the Enterprise Law in previous years, general partners must be those who "have professional qualifications and reputation", since partnerships are often established based on the professional qualifications and reputation of the general partners. This shows that the connection between partners in a partnership is tight, and thus also limits the number of people who can become general partners of the company. The Enterprise Law 2020 does not regulate this issue, but to be consistent with the personal connection, professional qualifications, reputation... of the general partners, these factors are still important when individuals decide to form a partnership.

In addition, the general partners are jointly responsible for the company's obligations, the creditor has the right to request any general partner to pay the company's debts. On the other hand, general partners with all their assets are responsible for the company's obligations. In addition, general partners have the right to participate and contribute opinions on the company's issues, this is one of the most important factors in the process of public development, which is recognized by Enterprise Law, general partners are also allowed to carry out company activities on behalf of the company, this shows that the role and position of general partners is very important and accordingly the business can also be coordinated better.

A general partner terminates his/her partnership when he: Voluntarily withdraws capital from the company; passes away, is declared missing by the Court, has limited civil act capacity or has lost civil act capacity; Excluded from the company; Other cases prescribed by the company's charter as prescribed in Clause 1, Article 185 of the Enterprise Law 2020.

In addition to the above provisions, a partnership may accept additional general partners, and new general partners must be jointly liable with their entire assets for debts and property obligations, unless that partner and the remaining partners agree otherwise as prescribed in Clauses 1 and 3, Article 186 of the Enterprise Law 2020.

Aside from the advantages of a general partner in a partnership, there are also limitations for general partners. A general partner may not be the owner of a private enterprise or a general partner of another partnership, unless otherwise agreed by the remaining general partners.

* General partners are not entitled to conduct business on behalf of individuals or in the name of others in the same line of business of that company for personal gain or to serve the interests of other organizations or individuals.

* General partners are not entitled to transfer part or all of their capital contribution in the company to another person without the consent of the remaining general partners.

b. Limited partners

According to Clause 3, Article 17 of the Enterprise Law 2020, limited partners can be organizations or individuals. Any organization or individual can become a limited partner of a partnership, except in cases where it is forbidden to contribute capital to the enterprise.

Limited partners only have rights directly related to their legitimate rights and interests. Limited partners, although not having the right to manage and operate the partnership, still have the right to attend meetings, discuss and vote at the Partners' Council on amendments and supplements to the company's charter, supplements to the rights and obligations of limited partners, on reorganization, dissolution of the company and other contents of the company's charter that are directly related to the rights and obligations of limited partners according to point a, clause 1, Article 187 of the Enterprise Law 2020. In principle, in cases where the company has the participation of both limited partners and limited partners, they are entitled to attend, discuss and vote at the partners' council meeting. The Partners' Council must include all partners, including general partners and limited partners. Each member has only one vote and the decision of the council is approved by at least 3/4 of the general partners. Although entitled to participate in the Partners' Council, the Enterprise Law 2020 does not allow limited partners to have the right to request convening a meeting of the Partners' Council. Because, only general partners have the right to request to convene a meeting of the Partners' Council specified in Clause 2, Article 182 of the Enterprise Law 2020. This is the problem that causes difficulties and obstacles to the limited partners when necessary to request the Partners' Council to meet to resolve important issues.

In addition, Limited partners have the right to transfer their capital contribution in the partnership to another person. Compared to general partners, limited partners exercise this right quite simply and easily and are not subject to many restrictions and constraints by law like general partners. Limited partners also have the right to conduct business in their own name or in the name of another person in the company's lines of business.

4. Legal regulation on capital of partnership

4.1. Assets of partnerships

Assets in a partnership include:

- Assets contributed as capital by partners that have been transferred to the company;

- Assets created in the name of the company;

- Assets obtained from business activities of general partners when acting on behalf of the company or when conducting business in the company's registered business lines in the name of an individual;

- Other assets as prescribed by law.

General partners and limited partners must fully and on time contribute capital to the company as committed:

- General partners and limited partners must contribute in full and on time the committed capital amount.

- A general partner who fails to contribute in full and on time the committed capital, causing damage to the company, shall be responsible for compensating for the damage.

- If a limited partner fails to contribute fully and on time the committed capital amount, the unpaid capital amount shall be considered a debt of such member to the company; related contributing partners may be expelled from the company by decision of the Partners' Council.

Right after fully contributing the committed capital or transferring the ownership of assets (in the case of capital contribution by property), the limited partners will be granted a certificate of capital contribution by the company. In case the certificate is lost, damaged or destroyed, the company will re-issue the certificate of capital contribution.

4.2. Transfer of contributed capital in a partnership

According to Clause 3, Article 180 of Enterprise Law 2020, “General partners may not transfer part or all of their contributed capital in the company to other organizations or individuals without the consent of other general partners". According to the above provisions, a general partner is not entitled to transfer part or all of his/her capital contribution in the company to another person without the consent of the remaining general partners.

In case of transfer of contributed capital of a limited partner: a limited partner has the right to transfer his/her contributed capital in the company to another person specified at Point d, Clause 1, Article 187 of the  Enterprise Law 2020. Limited partners' transfer of contributed capital is easier and freer because limited partners are the sponsors of capital, helping the company to expand production and business, and changing limited partners does not affect the company's personnel structure or its existence but this freedom can be limited if the company's charter provides otherwise.

REFERENCES

1. Ngo Huy Cuong (2009), The definition of of partnership In the Enterprise Law 2005, http://www.lapphap.vn/Pages/tintuc/tinchitiet.aspx?tintucid=211233 updated 01/06/2009 .

2. Nguyen Vinh Hung (2014), Completing legal regulations on partnerships in the Enterprise law 2014, https://phapluatdansu.edu.vn/2017/09/06/14/53/hon-thien -che-dinh-php-luat-ve-cng-ty-hop-danh-trong-luat-doanh-nghiep-nam-2014/ , updated 06/09/2021 .

3. FDVN Partnership (2020), Can a general partner be the owner of a private business, https://fdvn.vn/thanh-vien-hop-danh-co-duoc-lam-chu-doanh -nghiep-tu-nhan-khong/ updated 09/29/2020.

4. Judgment on the dispute over the contract to transfer shares and contributed capital in the company: Pages 40 – 50, https://fdvn.vn/tong-hop-20-ban-an-ve-tranh-chap-hop -dong-chuyen-nhuong-co-phan-von-gop-trong-cong-ty/ , updated on 12/18/2020.